Palo Alto Weekly

Editorial: Foothills mystery parcel proposed as park addition

Small city-owned parcel next to Foothills Park, subject of secret Council meetings in 2012, resurfaces in proposal to dedicate as parkland

A piece of property at the base of Foothills Park's beautiful Las Trampas Valley, once the subject of closed-door discussions about selling it to developer John Arrillaga, has now resurfaced with the opposite intent.

The 7.7-acre site, located beyond the group picnic area parking lot at the very end of the road in Foothills Park, was given to the city in 1981 by the Russel V. Lee Trust. For unknown reasons it was never formally added to the park or dedicated as parkland. In fact, for some seven years, between 1996 and 2003, it was leased to Arrillaga for use as a storage and staging area for construction of his estate.

The parcel has never been accessible to the public and has amounted to a buffer between the park and a large privately owned compound that includes Arrillaga's residence, a private lake and arboretum.

The city has allowed Acterra, the environmental organization that oversees native-plant management and restoration in the nearby Arastradero Preserve, to operate a small nursery on it.

In addition to the parcel, the Lee Trust also gifted the city an easement over a dirt road that provides access from Los Trancos Woods Road in Portola Valley.

In what would otherwise have been an unremarkable and minor proposal to their City Council colleagues, a memo from Councilmembers Pat Burt, Greg Schmid and Karen Holman reveals that the 1981 gift came with a deed restriction requiring the city to use the property for "conservation, including park and recreation purposes."

The revelation that the land came with those requirements raises even more questions about the propriety of the city's discussions with Arrillaga in the fall of 2012.

In September 2012, unknown to the public at the time, the Council discussed in closed session an offer by Arrillaga to purchase the land for $175,000. Council members secretly visited the property in small groups to avoid the Brown Act's notice requirements, which might have drawn public attention to the possible land sale.

While the closed-door discussions were disclosed on council agendas as a "discussion on price and terms of payment" of a parcel identified only by parcel number, a Public Records Act request by the Weekly resulted in the release of a draft sale and purchase agreement for the land prepared by Arrillaga and emails between staff and council members making arrangements for visits to the property.

At the time, the council was also in the midst of discussing Arrillaga's massive proposal to develop office towers at 27 University Ave., and the secrecy of the foothills property negotiations raised questions about why the city was negotiating to sell a piece of public land to a developer with whom it was also negotiating a major development project.

At the time, neither council members nor city staff would publicly discuss the issue since it had been considered in closed session. Although City Attorney Molly Stump said the item would be placed on a regular council agenda so the public could learn what was under consideration and why, no such discussion ever occurred and the matter apparently simply died without further action. The public was never informed about the reasons or circumstances for any of the city's actions, including why it would enter into negotiations without having first discussed the policy issue, in public, of selling a piece of city-owned land.

With the revelation that the land was a gift to the city and came with a deed restriction limiting its use, we now wonder why the sale of this property was even brought to the City Council for consideration.

Why all the secrecy about this parcel, and why are we only now learning the background?

Councilmembers Burt, Schmid and Holman are right in bringing this item forward in a way that shines a light on the history of this parcel and how it was handled by the council two years ago.

Their recommendations that the parcel be dedicated as parkland, evaluated for alternative public uses and be permanently opened for public access is more than 20 years overdue, and we presume the full council will endorse those actions.

Now would also be an appropriate time for the city staff to explain to the public why, given what is now known about the history of the property and its deed restrictions, it ever entertained selling the property and failed to disclose these details or hold a single public discussion about them.

Posted by curmudgeon,
a resident of Downtown North
on Mar 21, 2014 at 9:38 am

"Now would also be an appropriate time for the city staff to explain to the public why, given what is now known about the history of the property and its deed restrictions, it ever entertained selling the property and failed to disclose these details or hold a single public discussion about them."

Because Arrillaga wanted it done that way, that's why.

We know who pays staff: us. But we're never sure who they're working for.

Posted by Grimm is grim,
a resident of College Terrace
on Mar 21, 2014 at 10:30 am

Not sure what the council was thinking. Did they not know about the deed restriction? Sounds like this memo by Burt, Holman and Schmid was to save their asses-- they made the secret visits tothe location and were I on the plans to sell. Now that they may be exposed, they write this memo. Typical Holman-- out of touch, as always.
And naturally, as soon as arrillagas name is mentioned, we get comments about " greed". He is a successful businessman and a great philanthropist. Apparently success and good deeds upsets some local residents, like Grimm above. [Portion removed.]

Posted by leadership failure,
a resident of Another Palo Alto neighborhood
on Mar 21, 2014 at 10:35 am

Corruption is not one single crime, and it is sometimes not even a crime.

It it were really a crime, in some cases you can't even establish motive or that someone had a benefit from acting in a way which caused corruption to happen. Some City staff may just be stupid, and that is not a crime.

What is clear about corruption is that it impacts the lives of a lot of people. The corrupt make decisions on behalf of a town, a city, a country, that sideline the interests of many, to resolve the interests of a few.

Instead of an expensive Communications officer, we need a staff of Compliance officers who can regularly educate staff about their job, about any such sales or purchases considerations or concessions to be evaluated for propriety.

It is revolting that staff and council spend time evaluating closed door deals like this. That should be illegal, and somebody should get fired for that.

It's tiring to see James Keene sitting in the middle chair blaming everyone but himself. What is this job, a charity? Nice guy, whatever, but not even his vision for Palo Alto makes any sense.

Posted by David,
a resident of Palo Alto Hills
on Mar 21, 2014 at 5:04 pm

This small parcel is wedged in between two areas owned by John Arrillaga. One parcel is his home and ther other is the home and storage for the property manager. To develop this property by installing picnic and other park infrastructure would drive a huge wedge into the relationship between the city and its neighbor. So much for neighbor relations and good will. A possible use of this property would be to expand the Acterra native plant nursery and include a work/storage area more than their meger shed for Acterra and their increasing operation of stewardship in many areas.

Posted by leadership failure,
a resident of Another Palo Alto neighborhood
on Mar 21, 2014 at 8:13 pm

David,

Let me guess, Mr. Arrillaga will then be on the Acterra board, or something like that. So, instead of selling the land, it can just be gifted to some entity which can be more neighborly with Mr. Arrillaga.

Why gift it to Acterrra?. May as well sell it and then Mr. Arrillaga can gift it to Acterra.

Posted by resident 1,
a resident of Adobe-Meadow
on Mar 21, 2014 at 8:34 pm

Maybe it is time that Acterra remove its nursery so that this property is joined to Foothill Park so that access can happen through the Los Trancos Road versus the Page Mill Road. The access is far more easier through this route. All of the Mid-peninsula Open Space Preserves are in the vicinity of personal homes so there is nothing unusual about that set-up. If you visit Rancho San Antonio you will see personal homes located very close - some of which appear to be in the park.
Sorry David - nothing unusual about homes in vicinity of Open Space Preserves. Foothill has designated picnic areas for fire control so that should not be an issue - there would be no change in that.

Posted by leadership failure,
a resident of Another Palo Alto neighborhood
on Mar 21, 2014 at 9:57 pm

Coincidence, from a related thread, the city may be removed from what happens to the downtown transit center, including 27 University. Just in case, this small parcel in the hills may come in handy for future conversations/negotiations with Stanford/Arrillaga.

Posted by resident 1,
a resident of Adobe-Meadow
on Mar 21, 2014 at 10:02 pm

David - are you the same as indicated on the Board of Directors of Acterra?
I went to their web site and they do have a problem - they identify the nursery as their "own plant nursery".
So the plot thickens. I can see what Acterra has signed up to do - but I am sorely disappointed about the San Francisquito Creek. From beginning to end nothing is happening and the situation has gotten worse for the Joint Board that has been set-up to deal with the flooding issue. So stewardship in this situation is questionable. They call out stewardship of the creek as one of their projects but this whole creek situation has gone terribly wrong.

If you look at the requirements of the gifting of the land it is part of Foothill Park and provides easier access to the park than Page Mill Road.
I can see the dilemma but Acterra has a lot of resources and space for its nursery - it can even plant some of the trees.
Let me think - TREES - now wasn't there some plan to remove all of the trees at the Palo Alto golf course? HUMMM

Posted by Disgusted,
a resident of Old Palo Alto
on Mar 22, 2014 at 12:01 pm

This is so, so wrong on so, so many levels! Valuable park land that isn't put to public use. Public land up for sale without public notice or discussion. City officials deliberating circumventing same. Probably only when they discovered the deed restriction did this tank. Shocking and probably illegal that the city would consider selling any property without public notice, bid process, appraisal, etc. Given the laughable price it looks like a kick-back to a favorite developer, who frankly seems [insert word of your choice] for trying to pull off this astounding steal from all of us. Shame on you city council for trying to sell us out.

Posted by City leadership,
a resident of Crescent Park
on Mar 22, 2014 at 1:36 pm

The secret negotiations with Arrillaga for the 27 University monster deal was led by Steve Emslie - Assistant City Manager. He led the project through the Commissions and Advisory boards (his retirement followed soon after the dealings came to light).

But Emslie couldn't have had so many meetings and done such a huge deal without his boss, the City Manager knowing and approving, and the attorney too.

Posted by Disgusted,
a resident of Old Palo Alto
on Mar 22, 2014 at 2:18 pm

@David:

I missed this before: "This small parcel is wedged in between two areas owned by John Arrillaga."
Since when is 7 acres a "small parcel" -- give me a break!

"To develop this property by installing picnic and other park infrastructure would drive a huge wedge into the relationship between the city and its neighbor. So much for neighbor relations and good will."

So you are concerned about a "huge wedge" with Arrillaga because the city uses a property that it has every right to use. Again give me a break!

Try being concerned instead about the public's right to a "large parcel" and the potential for a "huge wedge" between the public and people who don't have their best interest in mind.

Posted by Desperate for neighborliness,
a resident of Midtown
on Mar 22, 2014 at 4:49 pm

"installing picnic and other park infrastructure would drive a huge wedge into the relationship between the city and its neighbor. So much for neighbor relations and good will."

Hear, hear!! I've got this very same situation at my home--city-owned developed land separating my property from my friend's. They call it a street. It would be an enormous contribution to neighbor relations and good will if you'd help us get this barrier removed.

Posted by Douglas Moran,
a resident of Barron Park
on Mar 22, 2014 at 5:40 pmDouglas Moran is a registered user.

When this first came to light (2012), I scanned the real estate ads* and $6-7million/acre seemed to be a typical price for an undeveloped parcel in the foothills. The $175K for 7.7 acres = $23K/acre, which would be more than 99.6% discount at $6M/acre or more than $46M below my estimate of market value (if the property had in fact been unencumbered with a deed restriction).

It would be interesting if someone with expertise could provide a better estimate, for example, the City Manager who should have reviewed the due diligence going to those negotiations.

*I don't know real estate people that deal with the foothills, so I had to use ads.

From what I have heard,.. Arrillaga used the public parcel as a staging area for construction material ( huge boulders etc..)Instead of off hauling the old material, he simply ground it up. And left it on site.

@Disgusted 2: I've been to the site, which Arrillaga leased for $1250/year. There are lots of small chunks of what looks like marble on the ground and some big piles of logs and wood chips. No huge boulders.

Posted by curmudgeon,
a resident of Downtown North
on Mar 22, 2014 at 9:02 pm

"...$6-7million/acre seemed to be a typical price for an undeveloped parcel in the foothills. The $175K for 7.7 acres = $23K/acre, which would be more than 99.6% discount..."

So it would seem. But the offeror was John Arrillga, ultrauberbillionaire and potential benefactor of the 27 University Circle urban fantasy. Such people bend the financial-legal fabric around them like black holes bend space-time in their neighborhood. Our starry-eyed* city hall was (and is) helplessly subordinate to the farce.

I believe that when the city bought that parcel from Russell V. Lee, it was at a special price because it was to be used for park and conservation uses. Alas, the City never actually dedicated the parcel as park. This proposal to sell it off to one of the richest men in America is precisely why this parcel should have been park dedicated. It's not too late, City Council.

Posted by Enid Pearson,
a resident of Crescent Park
on Mar 23, 2014 at 4:55 pm

Dr. Lee offered this parcel plus the 44A quarry to Palo Alto for very little money. He was also offering other pieces of land in the area that were still undeveloped and were since developed partially by Arrillaga. When the city in its wisdom chose not to accept the quarry, Lee sold it to Arrillaga. Lee put a restriction on the 7.7A so he could also use the land. When the restriction ended in 1996 (remember the 7.7 A was deeded to Palo Alto in 1981 so PA owned the land). Palo Alto was supposed to use the land per Lee's gift for park, conservation uses. At this point, 1996, the council should have dedicated the 7.7A as park. Instead the staff entered the city into a lease with Arrillaga for $1,250/yr with a $1,500 deposit and he used the land to stage quarry activity. The quarry is now a lake and a fine addition to his 44A estate. The lease never went to the city council but was signed by the Assis. City Mgr and Land manager.

The charter Amendment, Chap VIII, notes that when land becomes available as a park it must be immediately dedicated. What went wrong?

Maybe the 7-1 vote passing the Park Dedication Ordinance is meaningless. Parks are still vulnerable and accessible for development. Isn't that what arrillaga wanted to do to El Camino Park with the proposed 27 University Ave?

@ Pat: Instead of off hauling the remainder (useless) boulders,Granite ,Marble, Arillaga simply ground The leftover construction material, and left it on site. Nice way to save on dump fees, at tax payers expence.

Posted by anon,
a resident of Evergreen Park
on Mar 24, 2014 at 1:33 pm

It is 100 % clear that the city was wrong to not dedicate the 7.7 acres as parkland in a timely fashion; immediately after it was left to the city. The city was wrong to lease it to Mr. Arillaga. The city was wrong to entertain any notion of selling it to him for any amount, much less at the discounted rate of $175,000…almost free.
The city was wrong to consider, in secret negotiations, to let Mr. A develop another parcel of dedicated parkland in Palo Alto, 27 University.

It was also wrong of a seated Planning commission member, who was on the Board of Theatre Works ( once Chair of the Board ) to use his position to further the cause of getting a new home for theatre Works as part of the deal @ 27 University.
It was wrong for the city to city funds to pay the former commissioner to work for Mr. A. after he stepped down from the Planning commission; still behind closed doors to secretly plan 27 University.

When the project became public the city promised to have public forums on 27 University and the ersatz "Arts and Innovation " district. There have been no public meetings.

Wrong time and again…..and yet with the exception of the recent colleagues memo, senior staff with the help of some City Council members and certain self interested individuals appear to have gotten away with it all.

Posted by leadership failure,
a resident of Another Palo Alto neighborhood
on Mar 24, 2014 at 2:45 pm

Disgusted,

"Instead of off hauling the remainder (useless) boulders,Granite ,Marble, Arillaga simply ground The leftover construction material, and left it on site. Nice way to save on dump fees, "

As any tenant would do, the site needs to be left clear of debris caused by the tenant.

It is mind boggling that Keene and Stump will be getting raises.

The latest about 27 University seems to be a plan by Stanford to remove the City from any say about that site. Fine by me as long as PA zoning is not breached, and not a centimeter of the parkland the City owns in that area is given to that project. Is that dedicated parkland?

Posted by curmudgeon,
a resident of Downtown North
on Mar 24, 2014 at 2:50 pm

"Maybe the 7-1 vote passing the Park Dedication Ordinance is meaningless. Parks are still vulnerable and accessible for development."

Any ordinance is meaningless when is blithely disregarded by the government charged with enforcing it. Unfortunately, Palo Alto has adopted a very weak form of democratic government that delegates all real functions from the chief executive on down to unaccountable bureaucrats. In principle the accountable city council hires and manages the top five managers who control everything else. In practice our city council abdicates this only channel of ultimate accountability to consultants whose governmental accountability is nil.

It's a perfect scenario for an oligarchy, and nobody should be surprised that that's what we got. In fact, since most of the ruling oligarchs live in oligarch enclaves outside Palo Alto, what we have here is closer to a Banana Republic, ripe for picking.

It's time to elect councilmembers that give priority to governing over preening.

Posted by resident 1,
a resident of Adobe-Meadow
on Mar 27, 2014 at 7:05 pm

There are two streams on this topic. I visited Arastadero Preserve and Acterra has occupancy in the building that is at the main parking lot. It is a very nice building. There was a sign up sheet for volunteers. Comment from David above is misleading.

During the CC Meeting it was indicated that Acterra has a lease for 1/4 acres out of the 7.7 acres. The lease is up in two years. Any attempt to expand the lease for the full 7.7 acres will be in direct contradiction of the intent of the dedication of park land.

I believe that the citizens will be all over this segment as soon as the rain stops. I am sensing something else going on, a different type of vibe- what type of plants are on that segment? This requires some looking into.

Posted by resident 1,
a resident of Adobe-Meadow
on Mar 29, 2014 at 12:11 pm

Lets look at some general facts here:
1. People donate land and money to recognized organizations like Sempervirens Fund, Peninsula Open Space Trust, Midpeninsula Regional Open Space District, etc. to assist in managing a tax baseline to advantage.

2.The transfer of land requires a recognition as to value of the property for the transfer of property taxes to remove the value from - in this case the Lee family - to the city of Palo Alto. Many organizations did not exist at that time to which people donate property so the transfer was to the city of PA. Note that the land has no infrastructure elements.

3. I suspect that this all occurred during a general low point in the economy - the recession - and the city was having difficulty with the finances regarding this property transfer. Their ability to absorb it may have been a financial problem.

4. I suspect that financial assistance was provided in the form of a lease to help offset the financial and tax burden to the city. A good deal for all parties.

5. The land somehow came to the attention of the Weekly. The attention could have been driven by a need to define the value of the property - a matter of public record. Possibly a result of focus on the Comprehensive Plan to identify the city assets.

6. Since the property is now defined as part of the Foothill Park - which is part of the Midpeninsula Regional Open Space District the tax status has changed as to how it is categorized within the cities and organizations overall budget.

7. Note that the Arastadero Preserve is not listed as a MROSD property so it may be operating under a separate set of guidelines and not encumbered by any other restrictions.

8. San Francisco Chronicle 03/27/14 Tom Stienstra Article - Peters Creek Grove is in vicinity of Old Page Mill Road and alludes to numerous groups trying to purchase and protect properties in the Santa Cruz Mountains. Since it lists very familiar organizations there is a general swirl on properties in general which support their desires to create a group of interlinked properties. There are a lot of organizations and people involved in the general scrutiny of what is out there and how to link it all together.

9. The SFC article briefly discusses the change in how the State of California is funding parks. The days of groups buying land and giving it to state parks to manage is gone. Assume that the city also will have a problem with the change in funding. Thank you Tom for enlightenment on this topic.

10. Any commercial / non-profit entity on the property may be excluded under MROSD requirements but that has to be defined by a tax attorney. This may involve the assumption of some of the property taxes for the commercial portion on the property - or persons living on the property.

I have no direct information on this specific property other than what has been provided from its inception in the Palo Alto Weekly and general comments in the number of streams on this topic. I do know that once you change how the property is transferred for tax purposes and identified you have a number of tax ramifications. The assumptions that it was working under before have changed.

I think the principal people were working with the changes in the economy in general and trying to do the right thing. How the city proceeds now is in a more structured environment. The city now is trying to identify its assets as part of the Comprehensive Plan so it is all evolving and more clarity will be provided as time moves on.

Posted by resident 1,
a resident of Adobe-Meadow
on Mar 29, 2014 at 3:30 pm

You are correct - I was looking at the download for the Midpeninsula Regional Open Space District and it shows a Foothill Park in the vicinity of Los Altos Hills - no address on the download. There were some comments from someone in MROSD so assumed it was the same property. There is a park ranger in the summer so some formal support group. I did not know there was a different Foothill Park.

As to the lease cost we do not know what the value of the transfer from Dr. Lee to PA City was - reportedly very low - probably $1 more than the original purchase price. Usually those transfers are low to reduce any capital gains tax on the donor's (Dr. Lee's) part. He was not trying to make a profit on the deal - just reduce the tax impact on the estate beneficiaries. Also to maintain the property tax value on the city's part when it transfers to their books. The lease cost would reflect the value of the transfer to maintain a consistent value for the property - not to make a profit. This could have been enough to pay for any tax impact.

My guess is that the city at the time was struggling financially and needed some help.

If this occurred during the recession impacts I do know that many property investments were in trouble and there was a long period of recovery. You will note that the property has no infrastructure elements - all of which have to be added after the fact - that alone is a very expensive proposition.

My understanding is that the 7.7 acre property was a gift made in 1981 in the form of a deed with a time-limited restriction allowing the Lee family to continue to have some use of it until 1996.

I'm not a tax lawyer, but that type of transaction would typically result in a deduction for the donor, not a capital gains tax. As such a higher rather than lower market valuation for the property would be desirable. (It would be interesting to know the per acre sale price of the 44 acres Arillaga purchased from the Lee's around the same time.)

I don't believe that Palo Alto pays property tax on property it owns within Santa Clara County, so the valuation of the property at time of transfer should have had no tax implications for the city. The subsequent low cost lease to Arillaga seems to have been an inappropriate misuse of the property.

As an aside, the PAUSD was facing financial difficulties in the 1980's due to declining school enrollment but the city was not. That was the period during which the city had two full time naturalists on the payroll, supporting a vibrant education program at the now increasingly decrepit PA Baylands Nature Center.

The 80's also saw the city dealing with the newly acquired 600+ acre Arastradero Preserve. Perhaps the demands of managing site that drew attention away from the question of how to incorporate the 7.7 acre gift into Foothills Park.

Posted by resident 1,
a resident of Adobe-Meadow
on Mar 29, 2014 at 8:55 pm

Thank you for the info - my take on this was a ball park guess. The valuation of property typically changes when ownership changes. The property tax for the property would have updated to the value at time of transfer in 1981. My take would be that the Lee family would have to pay taxes on the "gift" of equivalent rental fee for the time they occupied the property after the transfer to the city.
It would be interesting to find out if the city pays property taxes. If you expand that to the total of Santa Clara County then there is a mass of land that is not producing any property tax throughout the county. Or expand that up to the state level.
I will check on that just for the sake of curiosity.
Bottom line this is a complicated set of transactions and the city cannot be viewed as making a profit on the sale of the property. It is possible that the group that was managing the Arastadero Preserve was over extended and understaffed to handle the whole set of transactions.

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